The IRS has recently released their inflation adjustments for the tax year 2021. More than 60 tax provisions were revised including tax rate schedules and standard deductions amounts. Below, we have summarized the revisions most relevant.
|Married filing jointly||$25,100||$24,800|
|Single/married filing separately||$12,550||$12,400|
|Head of household||$18,800||$18,650|
|Tax Rate||Single||Married Filing Jointly|
|37%||Income greater than $523,600||Income greater than $628,300|
|35%||$209,426 to $523,600||$418,851 to $628,300|
|32%||$164,926 to $209,425||$329,851 to $418,850|
|24%||$86,376 to $164,925||$172,751 to $329,850|
|22%||$40,526 to $86,375||$81,051 to $172,750|
|12%||$9,951 to $40,525||$19,901 to $81,050|
|10%||$9,950 or less||$19,900 or less|
The earned income tax credit has increased from $6,660 to $6,728 to qualifying taxpayers who have three or more qualifying children. Certain credit limitations, income thresholds and phaseouts may apply depending on your tax situation.
Health Savings Accounts flexible spending arrangements remains at $2,750 for 2021 for employee salary reductions. However, cafeteria plans permitting the carryover of unused funds has increased from $500 to $550.
The annual exclusion for gifts has not changed from 2020 amounts and remains at $15,000.
The majority of employee contributions to 401(k), 403(b), and most 457 plans has remained unchanged from 2020. The limit on contributions is still $19,500 with a catch-up contribution for employees ages 50 and over of $6,500. SIMPLE retirement accounts still have a limit of $13,500.
The limit on annual contributions to an IRA remains at $6,000 with a catch-up contribution for individuals age 50 and over of $1,000.
IRA and Roth IRA Eligibility for Deductible Contributions
Certain taxpayers can deduct contributions to a traditional IRA. These contributions are limited to certain conditions including income limitations and phase-outs. Below are tables detailing the phaseout ranges for taxpayers in 2021.
If neither taxpayer nor spouse is covered by a work retirement plan:
|Filing Status||IRA Phaseout Range||Roth IRA Phaseout Range|
|Single||$66,000 to $76,000||$125,000 to $140,000|
|Married filing jointly||$105,000 to $125,000||$198,000 to $208,000|
If an IRA contributor is not covered by a workplace retirement plan but is married to someone who is covered then the phaseout range is $198,000 to $208,000.
If an individual is filing a married filing separate return and is covered by a workplace retirement plan, then the phaseout remains $0 to $10,000 for both IRA and Roth IRA contributions.